I have always believed that pension funds should stick to their core purpose of investing for a secure retirement. Yet in SA they are starting to resemble providers of life and disability insurance with some savings element thrown in — almost like an old-school universal life policy on a grand scale.
With Covid, the pendulum has swung even further towards these risk benefits. According to a recent Alexander Forbes Hot Topics seminar, the increase in payouts on group life insurance has been as high as 115% among the large life offices between 2019 and 2020, and even the best experience was a 32% rise. Meanwhile, funeral policies — usually the high-margin cash cow of the assurers — have seen claims jump by as much as 103%.
John Anderson, perhaps the most experienced benefit consultant still at Forbes, tells me that in most of the world, the trade-off between risk benefits and pension savings doesn’t take place. That’s because the cost of risk is not provided within a pension fund, but is offered directly by the employer. Good death and disability benefits are seen as a way to attract and retain talent. As it is part of the human resources and reward strategy, employers pay it a lot of attention. It affects company profits. Right now in SA it is buried somewhere in the cost to company package, so who cares?
Belinda Sullivan, head of corporate consulting strategy at Forbes, says claims in the second Covid wave are coming through only in the 2021 statistics and they are disproportionately affecting those with higher sums assured: older and higher-income members. She says insurers are looking at pricing adjustments — no prizes for guessing which way. There was a reduction in disability claims in the early months of the lockdown for logistical reasons, including limited access to medical facilities, so fewer people could become registered as disabled, while HR departments, often working on a skeleton staff, took quite a while to process claims. Insurers now want to establish longer waiting periods before paying new disability benefits.
For the first time, more than 10% of disability claims are for infectious diseases. There is still considerable uncertainty about the effects of long Covid, the term used for people still suffering from Covid symptoms after 12 weeks, but Myrna Sachs from Forbes’s health management solutions unit says that up to 30% of patients suffer the long-term consequences of Covid even a year after recovery. She says the effects on the immune system and inflammatory processes in the body persist, while the neuropsychological effects are often underestimated. Sachs says many Covid sufferers assume that their fatigue, exhaustion and cognitive aberrations such as brain fog will disappear if they lie down for a few hours.
In one study, two-thirds of Covid sufferers experienced symptoms for up to six months, and of these 45% needed a reduced work schedule.
It might mean that employers have to work harder with their medical schemes to get the best support. Sachs says in too many cases employees are required to return to work too early, so adaptability and flexibility are key. But she also argues that employees need to play their part by acting honestly and not taking advantage of more generous Covid leave arrangements.
It’s probably too early to assume a permanent Covid consequence for company pension schemes. But if firms truly believe that employees are their greatest asset, they will recognise that better risk benefits help lead to higher productivity and lower staff turnover.
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